Are You Eligible for Tax Refunds? Ask Your Nashville Accounting Firm

It’s tax season once again with the April 18 deadline for the filing of income taxes looming upon us. If you’re like most small business owners in Nashville, TN, paying income taxes can be a painful exercise. Fortunately, there’s a silver lining in the form of tax refunds.

Not everyone is entitled to a tax refund but a close examination of your finances with your accounting firm might reveal some opportunities for one. According to the IRS, the average tax refund for 2021 was $2,870—certainly not an insignificant amount especially for small business owners who have to constantly watch their cash flow.

Here are some of the ways you may be eligible for a tax refund:

1. Overpayment of estimated taxes

If you are a small business owner and are not receiving paychecks from your business, you are required to make estimated tax payments throughout the year based on your expected income and expenses. If you overpay your estimated taxes, you may be eligible for a tax refund. This can occur if your business’s actual income and expenses are lower than anticipated, resulting in an overpayment of estimated taxes.

2. Overpayment of payroll taxes

As a small business, you are also required to withhold and pay payroll taxes on behalf of your employees. If you overpaid your payroll taxes, you may be eligible for a tax refund.
You may also get a payroll tax refund if you qualify for related tax credits, such as:

• Research & Development tax credit
  Businesses who performed eligible research activities can offset the credit against federal or state income taxes.
  
• Employee Retention Credit
  The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides tax relief to small businesses who paid salaries and health benefits to employees while their operations are fully or partially suspended.

3. Deductions and credits

You can take advantage of a variety of deductions and tax credits given to small businesses to reduce your tax liability. If the amount of deductions and credits claimed on your tax return exceeds the amount of tax owed, you may be eligible for a tax refund.

One such tax credit to look into is Qualified Business Income (QBI). This income tax deduction may be enjoyed by pass-through businesses who meet certain eligibility criteria, including a maximum income limit. If your business qualifies, you can get an additional 20% tax deduction from your net income for the year.

If you started your business in the past year, look into start-up cost deductions, which allow you to deduct up to $5,000 of your start-up costs and up to $5,000 of your organizational expenses.

4. Net operating losses

If your business experienced a net operating loss, which means that your expenses exceeded your income, you get an opportunity for tax savings. While this can be a challenging situation for any business, net operating losses can be carried forward to future tax years to offset income, resulting in a lower tax liability and potentially even a tax refund.

Small businesses can be eligible for tax refunds under a variety of circumstances. Work with your CPA to ensure you are taking advantage of all available tax saving opportunities and discover if you are eligible to receive a tax refund.